What is a Golden Life Jacket?

A golden life jacket is a compensation package offered by an acquirer to executives of the company it is acquiring. It is the same as a stay bonus.

How Does a Golden Life Jacket Work?

For example, let's assume that John is the CFO of Company XYZ. Recently, Company ABC acquired Company XYZ. The company wants John to remain at the company after the acquisition, so they offer him a golden life jacket of $15,000.

In the real world, golden life jackets might range in the millions of dollars for executives at very large companies. They might be cash, stock, options, or a combination of the three.

Why Does a Golden Life Jacket Matter?

A golden life jacket is an attempt to retain key talent during turmoil. Quite often, employees leave companies that have been acquired. They do this either because the merger creates redundancies (for instance, two accounting departments) that lead to layoffs or because the employees no longer like the culture or new management.

However, golden life jackets are expensive, and critics often question whether they are in shareholders' best interests (particularly if the merger was the result of the target underperforming or was not at a high-enough price for the shareholders).